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Direct Evidence on Income Comparisons and their Welfare Effects

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  • Claudia Senik

Abstract

This paper provides direct evidence that income comparisons exert a significant impact on subjective well-being. It also evaluates the relative importance of different types of benchmarks. Internal comparisons to one's own past living standard outweigh any other comparison benchmarks. Local comparisons (to one's parents, former colleagues or high-school mates) are more powerful than self-ranking in the social ladder. The impact of comparisons is asymmetric: under-performing one's benchmark always has a greater welfare effect than out-performing it (in absolute value). Comparisons which reduce satisfaction also increase the demand for income redistribution, but there, the relative impact of subjective ranking is preponderant.

Suggested Citation

  • Claudia Senik, 2009. "Direct Evidence on Income Comparisons and their Welfare Effects," Post-Print hal-00696621, HAL.
  • Handle: RePEc:hal:journl:hal-00696621 DOI: 10.1016/j.jebo.2009.04.019 Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00696621
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    More about this item

    Keywords

    C25; D31; D63; I31; J31; O57; P3; Z13; Subjective well-being; Income comparisons; Demand for income redistribution; Internal and external benchmarks; Transition;

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • P3 - Economic Systems - - Socialist Institutions and Their Transitions
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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